Germany’s plans for tighter financial market regulations is likely to hit Deutsche Bank harder than once expected. That’s because the legislation, which will require big banks to separate retail and investment activities, will be especially stringent when it comes to hedge fund business, where Deutsche Bank is a significant player.

The legislation requires that the secured business of hedge funds is separated from bank customers’ money, people familiar with the legislation have said. Loans are seen as “secured” when they are backed up with securities, such as assets.

Berlin’s proposal, coordinated with France, is part of a broader push within the European Union to ring-fence banks’ high-risk activities, and force institutions to hold more capital to shield taxpayers from future bank bailouts. But Germany’s proposal appears to be the most far-reaching so far, with France’s plans, for example, requiring only a separation of the unsecured business of hedge funds.

The draft law approved Wednesday by the German Cabinet reveals a tough stance, but details remain to be clarified, including which “loan and guarantee transactions with hedge funds” will be prohibited.

The main European indexes finished the month of January with stellar gains and this optimism looks set to continue in the near term at least. Improvements in U.S. and European macro data have certainly helped set the mood–nonfarm payrolls are the next big data point on the agenda.

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Meanwhile, the City’s number crunchers keep churning out the daily broker notes. The earnings season has certainly provided much of the momentum here and has set the tone for today’s top picks. We’ll start with the banks.

Deutsche Bank has been upgraded by both JPMorgan Cazenove and Citigroup Friday, following the release of its fourth-quarter results. JPMorgan said that since October 2012, Deutsche Bank has underperformed the brokerage’s global investment bank coverage by 14%, underperformed European banks by 7% and is up only 5% on an absolute basis.

It said the bank’s capital improvement is on track. “Capital at risk curve balls remain but are being reduced,” said JPMorgan. Similarly, Citigroup has noted the bank’s underperformance versus European peers. With an underlying return on tangible equity of 10% to 12% over 2013 through 2015 and a number of contingency and regulatory risks easing, Citigroup thinks it’s time for an upgrade.

Sticking with the banking sector, BNP Paribas has been upgraded by Société Générale.

Rarely is Deutsche Bank’s press conference as colorful. But Thursday morning it was barely possible to make it past the rabble of protestors chanting songs about world food supply and rising food prices. So Deutsche had some explaining to do as to why it’s once again selling financial products based on agricultural commodities.

Its return, after barely a year, announced by Co-Chief Executive Juergen Fitschen earlier this month at Germany’s biggest agricultural fair Gruene Woche, or “Green Week,” comes at a time when the bank is making tremendous efforts to repair its tarnished public image. And its two new co-chiefs, who took the helm in June, unrelentlessly advocate the bank’s need for “cultural change.”

In the course of last year, Deutsche Bank’s image suffered substantial blows ranging from state prosecutor raids of the bank’s premises and the bank’s alleged involvement in a number of investigations on interest-rate fixing, such as the Libor and the Euribor, to tax evasion.

And of course, casting its shadow is the high-profile decade-old legal battle over the bank’s role in the 2002 bankruptcy of Germany’s Kirch Media Group. Indeed, in December a German court ruled against the bank. Deutsche Bank will likely appeal the decision, rather than finally agreeing on a long-awaited settlement, making the case a seemingly never-ending story.

Despite delivering fourth-quarter earnings way below anything markets had expected, Deutsche Bank shares have been trading in positive territory for most of the day, as analysts focus on improvements in the bank’s capital position.

Germany’s largest bank reported a net loss of 2.17 billion euros ($2.93 billion) in the fourth quarter, as it took substantial charges to clean up its business, remove risky assets from its balance sheet and set aside money for legal disputes.

The hefty loss hasn’t stopped J.P. Morgan Cazenove from upgrading the stock to “neutral” from “underweight” with a new target price of €38, compared to €35 previously.

“New management under co-Chief Executive Officer Anshu Jain has illustrated its ability, to improve its capital position above expectation and guidance in the fourth quarter,” J.P. Morgan said.

UBS, whose widely-praised investment banking restructuring was overshadowed late last year by the Kweku Adoboli and Libor-fixing scandals, was today tipped for success in a clutch of research reports on European banks. Giles Turner, from efinancialnews.com, dug around to find out why. Here’s a taster of his article.

Reuters

By Giles Turner

UBS underwent radical restructuring in 2012 and in October announced plans to cut 10,000 staff and all-but-exit fixed-income trading, a capital-intensive business. The move to slim its investment bank was roundly praised by analysts at the time.

In November, Morgan Stanley said in a note that the sweeping changes at UBS “have raised the stakes” for rivals.

UBS’s share price has risen by over 18% since the announcement–the stock was trading at €16.34 this morning–and according to Andrew Lim, banks analyst at Espirito Santo, it may have further to run.

In a report this morning, Mr. Lim noted that UBS has been trailing the SX7P Banks Index by 6% in the last month, and that the bank’s fourth-quarter results on Feb. 5 “will be the key catalyst for UBS to re-rate further to our target price, reflecting faster RWA reduction and with much lower exit losses than the market currently anticipates.”

UBS was also among the top choices of analysts from Berenberg, Barclays, and Morgan Stanley.

Financial News has taken a detailed look at the 2012 share price performance of the world’s largest banks. Its research took in the 89 constituents of the MSCI index that remained in the ranking between Jan. 2 and Dec. 31, 2012. FN also analyzed the share price performance of Deutsche Bank, Credit Suisse, UBS, Goldman Sachs, Morgan Stanley, JP Morgan, Citigroup and Bank of America Merrill Lynch. All of these institutions have large investment banks but fall under MSCI’s “diversified financials” classification and not its “banks” indices. We thought you’d be interested in FN’s findings. So here’s a taster of the article, the full version of which can be read at efinancialnews.com.

By Richard Partington

The world’s largest banks put in a stellar year of share price performance in 2012–with an overwhelming 86% of institutions enjoying a positive year–despite the ongoing structural challenges facing the industry and a number of high-profile scandals.

Credit Suisse was among the minority of global banks whose share price fell in 2012, a year in which the MSCI World Banks Index rose by 28%.

A total of 83 banking groups ended 2012 with their stock worth more than it had been at the start of the year. These included JP Morgan (up 26%), UBS (24%), Barclays (49%), HSBC (32%) and Standard Chartered (12%), all of which ended the year up despite having endured high-profile scandals.

Over at Dow Jones Banking Intelligence, Joe Ortiz has been taking a look at Deutsche Bank’s woes. Here’s a taster of his article, the full version of which can be read at DJBI, a subscription only service.Click here to subscribe.

This week, you can just imagine Deutsche Bank’s CFO Stefan Krause turning to co-CEO Jürgen Fitschen and lamenting, “Unglück kommt selten allein.” It never rains but it pours.

Already regarded as being among the weakest of Europe’s major banks when it comes to capital, Deutsche on Thursday warned that expectations of a fourth quarter net profit of between €500 million to €600 million would be affected by a “significant negative impact” following a review of impaired assets, which could lead to a loss.

Mr. Krause declined to be more specific and the bank in a statement said the review was still “ongoing.”

That means the bank’s strong investment banking franchise is running very fast for the whole group to stand still at best. It also implies that in order to maintain its first quarter 2013 Basel III core Tier 1 capital ratio target of 8%, something else will have to give. Credit Suisse says it expects €250 million of deleveraging costs and €280 million of restructuring costs in Q4, leading to a pretax loss of €448 million.

All else being equal, Deutsche might not have too much trouble improving its capital ratios, which are fundamental for market confidence. But the trouble with Deutsche is that all else is very far from equal. In fact, the past week has been a disaster, and the market has slashed 5.6% off its shares in the last two days.

What will the banker of the future look like? He’ll be “more female.” He, err, she will be older (as retirement age will be higher), more mobile and a tech-aficionado who works more but earns less, according to one of Deutsche Bank’s top executives.

Sound realistic? Stephan Leithner, Deutsche Bank’s executive board member responsible for human resources and compliance, thinks so. The changing face of bankers is tied to the banking industry’s need to reinvent itself to win back customers, he reckons.

While Shell’s shares have outperformed European peers by 23% over the past three years, the oil giant is poised to start a major capex drive to achieve a boost in growth in the second half of this decade. “This new cycle will be more capital intensive and will likely lead to lower returns,” Goldman said.

It analysts estimate that over the next two to three years, Shell has little additional cash flow growth to deliver, while its older legacy assets are facing decline and the cost recovery of the new projects will only last another two to three years.

“As a result we believe Shell’s returns and free cash flow will decline in absolute terms and versus peers in the coming years,” said Goldman.

Top management at Deutsche Bank will now have to wait five years to receive a significant part of their remuneration package, after the German bank set out how it intends to be at the forefront of a change in banking culture.

Deutsche revealed this morning that senior management will now only receive the deferred equity part of their bonus payouts after a five-year vesting period. Currently, they receive their deferred compensation over three years. The bank, in a statement outlining the compensation policy change and other strategic objectives, did not elaborate on what level of staff seniority the change would affect.

The bank has also said that it has opted to abandon its previous interim vesting structure – where payments are staggered over intervals – and instead implement what it termed “cliff vesting”, whereby the full amount of deferred equity compensation will be paid out at the end of the full five-year period.